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JPMorgan Expecting Bolder 50BP BRCP Cut This Week

  • This week the BCRP meets, and JPMorgan expect a 50bp cut, driving the policy rate to 6.5%. Ahead, the policy rate is forecasted to converge to 4.5% by the end of 2024, and the terminal rate for the cycle is projected at 4.0% by 1Q25 (implying a 50bp interest rate differential to the fed funds rate).
  • The deflation observed in October and November, together with stagnant activity momentum amid a negative output gap are factors that merit accelerating the calibration of the real rate lower.
  • In addition, external financial conditions have relaxed in the last weeks, helping the exchange rate to prove less sensitive to the process of real ex-ante policy realignment.
  • Finally, it would be optimal to accelerate the easing pace before the potential full impact of El Niño expected in 2Q24. That would allow the central bank to pause by then, if need be, without penalizing the post El Niño recovery phase.

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